Currently, there is a practice in the United States mortgage industry allowing home-owning borrowers to avoid non-tax deductible mortgage guaranty insurance premium payments (commonly known as “PMI”, or private mortgage insurance) by opting instead for lender paid mortgage insurance. Briefly, it works as follows: at the outset of a finance contract relationship, home-owning borrowers and/or homebuyers borrowing more than 80% of their home's value in one single mortgage typically must either pay for mortgage guaranty insurance or agree to pay a higher interest rate than they would otherwise agree to, essentially financing the cost of the mortgage guaranty insurance into their interest rate. The mortgage industry often calls this later method “lender paid mortgage insurance”. Some within the mortgage industry call this product tax advantaged mortgage insurance. Many mortgagors prefer this alternative to traditional “PMI” as a tax strategy. Because interest paid on residential mortgages is tax deductible, an otherwise non-tax deductible mortgage insurance guaranty premium is converted into a tax-deductible premium by charging and collecting the premium within the interest paid on the mortgage. This is accomplished by increasing the interest rate on a mortgage beyond the rate otherwise available to the home-owning borrower. The extra interest paid (differential between what the home-owning borrower could obtain and the increased rate agreed to) is used to compensate the mortgage lender for the risk involved in making a mortgage that exceeds eighty percent of the appraised value. The extra interest charged and collected is used by the lender or servicer of the mortgage to pay for the risk of providing a mortgage in excess of eighty percent of the lesser of the purchase price or the appraised value. This technique results in the borrower having tax-deductible mortgage insurance.
In the present invention, a system and method is described for making premium payments for insurance products, payments for condominium association dues and cooperative fees, payments for the purchase or lease of consumer goods, payments on credit card debt and student loan debt, property tax payments, and other debt typically incurred by home-owning borrower's tax deductible by paying for such items through interest charged on residential mortgages. Payments on such obligations will be paid through a home-owning borrower's mortgage interest payments. One objective is to make the payments for these items tax deductible in a similar manner that lender paid mortgage guaranty insurance is tax deductible, but to afford greater flexibility and opportunity to participate than under the traditional systems. Another objective is to consolidate a home-owning borrowers' financial obligations making debt management easier. All references to “mortgages” throughout this application include by definition mortgages for home purchases, mortgages to refinance homes, home equity lines of credit, and any other debt secured by residential real estate, and particularly pursuant to which the real estate is placed at risk of foreclosure for default. “Real estate financing contract” contemplates not only mortgages, but notes associated therewith.